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Do Wages Lead Inflation? Swiss Evidence

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Summary

We construct a quarterly time series for nominal hourly wages and unit labour costs from 1975 onwards and investigate the empirical link between wages and CPI inflation in Switzerland in order to identify causality effects and assess the relevance of wages as an indicator for short-run price changes. We find evidence that prices systematically influence wages whereas the influence of wages on prices is much more sensitive to the choice of the sample period. In particular, the explanatory power of wages disappears in a low inflation environment. These findings move in the same direction as most evidence obtained with US data.

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Author information

Correspondence to Attilio Zanetti.

Additional information

I am grateful to two anonymous referees for their stimulating suggestions. Earlier drafts of this paper took advantage of the helpful remarks of several collegues at the SNB as well as of participants in the 2006 Annual Meeting of the SSES. I also thank André Farine at the SFSO for his support in gathering the data as well as Cliona Coyne and Helen Baumer for their careful reading of the manuscript. The views expressed in this paper are those of the author and do not necessarily reflect those of the Swiss National Bank.

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Keywords

  • inflation
  • wages
  • unit labour costs
  • Granger causality

JEL classification

  • E31
  • J30